|Integration into global markets has been a strong driver of growth for many developing countries over the past 30 years, but not all have effectively participated. It is important that developing countries exploit the opportunities that global integration offers to raise and sustain rates of growth. This calls for more attention to policies that facilitate trade and improve competitiveness – supported where necessary by Aid for Trade. In this context it is useful to have a framework in which to assess the range of issues that affect countries ability to compete in international markets. There are three critical complementary elements: |
|1. Incentive Framework |
A key challenge for policy makers is to ensure that domestic resources are channeled to their most productive activities. This requires a careful analysis of the structure of incentives in the economy to ensure that land, labour, capital and technology are moving to a) sectors in which the country has a long-term capacity to compete and b) to the most productive firms within sectors. This necessitates a clear understanding of how trade, tax, the business environment and labour market policies interact to affect investment, output and trade decisions. In many small low income countries the economy tends to be dominated by a small number of sectors so that many of the key issues regarding the allocation of resources can be unearthed by analysis that focuses on these sectors.
2. Reducing Trade Related Costs
Of great importance in today’s globalised economy is that domestic firms have access to efficiently produced critical backbone services inputs. Firms that have to pay more than their competitors for energy, telecommunications, customs services, transport and logistics, finance and security will find it hard to compete in both the domestic and overseas markets. Competition and regulatory oversight in these services industries lie at the heart of the policy challenge. In many developing countries lack of infrastructure is a critical constraint on the availability and cost of backbone services. Other critical services are those related to education and training that are necessary to ensure supply of the type of labour required by the more productive expanding sectors in the economy and to foster a process by which value is increasingly added to the products and services produced in the country.
3. Overcoming Market and Government Failures
It is important to address a range of market and government failures that tend to afflict countries as they seek to expand exports and growth. In many cases these constraints to competitiveness require specific interventions and institutions. These are likely to include export and investment promotion agencies, standards bodies, agencies to support innovation and clustering. In mitigating government failures and weak capacity for policy formulation and implementation effective mechanisms can be to establish an empowered and dedicated trade and competitiveness policy unit within government, export processing zones and duty refund schemes. It is important that these initiatives are brought together within a strategy for competitiveness rather than as a series of ad hoc interventions. In isolation these agencies tend to be rather weak and ineffective.
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